After spurring loan and housing boom, Homebuilder is being wound down

A government grant has been widely credited with helping right the economy following the pandemic, leading to surges in home loan applications and construction projects, but it’s being whittled down in the near future.

The value of home loan commitments has reached its highest level in recorded history, according to October data from the Australian Bureau of Statistics (ABS), and building approvals for private housing reached a level not seen in two decades.

All of this has happened against a backdrop of ‘doom and gloom’, where a once-in-a-century pandemic resulted in a recession that drew comparisons to The Great Depression.

The economy’s recovery -- the most recent quarter posted gains of 3.3 per cent following a 7 per cent drop -- is the culmination of a series of relief measures.

But in the banking and construction industry, one of these measures has been doing the majority of the heavy lifting: Homebuilder, a $25,000 grant for residential renovation and construction projects.

“The value of construction loan commitments has risen by 65.6 per cent since July, which coincides with the June 2020 implementation of the Government’s HomeBuilder grant in response to COVID-19”, Amanda Seneviratne said, head of finance and wealth at the ABS.

“(The) feedback from lenders was that there has been a large increase in first home buyers applying for these construction loans over the last few months.”

23,500 applications and counting

The government’s Homebuilder scheme was due to expire at the end of the year, but the Prime Minister announced it has been extended for three more months -- only, at 60 per cent of the original value.

“We’re keeping people in jobs and putting Australians’ dream homes within reach,” Mr Morrison said, at the time. “It’s critical we keep the momentum up for Australia’s economic recovery.”

From next year, applicants spending from $150,000 to $750,000 on renovating or building a home will be eligible for a $15,000 grant -- unless they’re in Sydney or Melbourne, where the maximum caps are $950,000 and $850,000 respectively.

The federal government revealed 23,877 homebuilder grants had been applied for as of November 20, and it’s anticipated a further 15,500 people will apply during the three month extension.

The scheme, budgeted to cost taxpayers $921 million in total, is intended to keep home loan commitments and the construction industry afloat, the latter generating $100 billion a year and contributing 5 per cent of Australia’s gross domestic product.

Most buildings approved by councils in 20-years

Record low interest rates coupled with incentives, including Homebuilder, have led to a frenzy of people signing up for mortgages to build homes.

Following a dip due to COVID-19, the number of people building residential houses has shot up for four straight months to October, according to the ABS, reaching a record not seen since February 2000.

"The continued strong demand for detached housing follows the relaxation of COVID-19 restrictions in most states and territories,” Daniel Rossi said, director of construction statistics at the ABS.

“Record low interest rates and a range of Federal and state-based incentives are also providing support for the housing sector.”

Rises were recorded across all building types in October, Mr Rossi said, resulting in a seasonally adjusted lift of 3.8 per cent.

The stellar performance has been atypical of a recession and a result of the government’s subsidies, Craig James said, chief economist at CommSec.

“It has been a most unusual recession,” he said.

“Home prices are at record highs in many regions, profits are at record highs and house approvals are at 20-year highs …

“The ride could still be bumpy over the next year, but Australia’s success at suppressing the virus gives us more options and more upside potential than many other advanced economies.”

A surge in first home buyers

The number of people signing owner-occupier mortgages lifted by 0.8 per cent in October to $17.4 billion, the ABS said, resulting in a 31.2 per cent lift when compared to the same period a year earlier.

And Homebuilder is not likely to be the only government stimulus behind the surge.

The number of first home buyers increased by 3.4 per cent to 13,481, more than 30 per cent higher than any month since 2009, when the first home owner grant was temporarily tripled as part of a government stimulus package in response to the global financial crisis.

The government’s first home loan deposit scheme is expected to be behind the push, allowing people to enter the market with just 5 per cent deposit and no lenders mortgage insurance.

A second tranche of 10,000 spots was made available as part of the government’s federal budget, but the only homes that can be bought must be new or newly built.

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